Stockwatch Energy today
Energy Summary for Dec. 7, 2020
2020-12-07 19:58 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery lost 50 cents to $45.76 on the New York Merc, while Brent for February lost 46 cents to $48.79 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.75 to WTI, down from a discount of $11.58. Natural gas for January lost 17 cents to $2.41. The TSX energy index lost a fraction to close at 92.03.
The big news in the Canadian oil patch today came courtesy of one of the smaller drillers. Scott Ratushny's Alberta-focused Cardinal Energy Ltd. (CJ) added eight cents to 73 cents on 2.39 million shares, after arranging a $16.9-million note offering and an accompanying $4.06-million unit offering -- but the real highlight of both financings was the main participant. N. Murray Edwards, the billionaire oil sands financier behind Canadian Natural Resources Ltd. (CNQ: $31.76), is buying $13-million of the notes and $2.6-million of the units. Each unit will comprise a share and a warrant and will be issued at 50 cents. "We welcome Mr. Edwards's investment in Cardinal and his confidence in our assets and business plan," cheered Mr. Ratushny, Cardinal's chief executive officer. Mr. Edwards will own 18 per cent of the stock once the deal closes.
At 73 cents, Cardinal's stock has flitted up rapidly from just 39 cents over the last 3-1/2 weeks. Mr. Edwards's investment seems to have cemented the market's rising confidence. Importantly, about two weeks ago, Cardinal made a coy announcement about a term sheet with "new and existing lenders" that will provide "longer-term certainty" around its debt, triggering speculation that it has secured federal loan funding (as discussed in the Energy Summary for Nov. 25). Cardinal promised to provide more details on the term sheet by Dec. 15. Mr. Edwards is presumably already privy to the details. Regular non-billionaires will have to keep waiting. Still, this is all a pleasing change of fortunes for Cardinal, which was previously forced to take some unpleasant actions in response to the COVID-19 crisis. It suspended its dividend, gutted its budget and shut in a significant chunk of its production. Now it is happily welcoming none other than Mr. Edwards as a major shareholder and will "look forward to working with him as we build our company's future."
Further afield, Colombian oil producer Parex Resources Inc. (PXT) lost 19 cents to $18.99 on 982,400 shares, after announcing that president and CEO Dave Taylor will be retiring next year, coincident with his 65th birthday. He has been with Parex or its predecessor, Petro Andina (an Argentine oil producer that was sold for $7.65 a share in 2009, with Parex being spun out as part of the deal), since 2007. In 2015 he became Parex's president, in 2017 its CEO. Chairman Wayne Foo, Parex's original president and CEO, thanked Mr. Taylor for his "steadfast leadership" over the years.
Mr. Foo also sought to dampen speculation that the change in leadership might signal a change in direction. Parex, currently the second-largest oil company in Colombia, has previously shown some keenness to try a different style of business, even undertaking a "strategic repositioning review" in 2018. It specifically thought about selling its producing fields and "resetting [itself] as an exploration-driven, industry-leading, high-growth junior." The stock was worth $25 when Parex announced that idea. Within months, it had plunged below $14. Parex scrapped the idea in December, 2018, and said it was happy with business as usual after all. As things stand, its guidance for 2021 calls for production of 47,000 to 49,000 barrels a day (up from about 46,500 in 2020) on a budget of $130-million (with a further $165-million earmarked for share buybacks). Mr. Foo said this is a "strong capital program" and he is confident that Mr. Taylor's successor will "deliver" it.
That successor will be Imad Mohsen, effective Feb. 1, 2021. Parex did not promote from within this time. The 47-year-old Mr. Mohsen spent 17 years with Shell in the Netherlands, Nigeria and Egypt and other countries, before taking on his current role as CEO of Tulip Oil, a private-equity-backed producer in the Dutch North Sea and Germany -- all regions that are challenging for various geographical and regulatory reasons. Tulip announced last week that Mr. Mohsen was leaving the company in January "in pursuit of other opportunities." Now the opportunity has become clear: to be in charge of Parex and "engage the current Parex organization to maintain and build upon [the company's] strong performance and future potential."
Another international producer, the Lundin family's Africa Oil Ltd. (AOI), added two cents to $1.17 on 73,600 shares, after securing extensions of its 10BB and 13T block licences in Kenya. These licences are held in a joint venture with Tullow Oil and France's Total. They were originally set to expire three months ago, but the Kenyan government granted a reprieve until the end of this month, with the idea that the licences would be further extended to Dec. 31, 2021, pending an approved work program and budget. The joint venturers have now done all that and secured the extension.
Investors might have liked to see the new work program and budget, but Africa Oil stayed mum, revealing only that the joint venturers will "reassess their oil project in Kenya and design an economic project at low oil prices whilst preserving the phased development concept." Noticeably absent was a timeline to a possible final investment decision (FID). The joint venturers' original goal was to reach the FID stage by the end of 2019 and achieve production in 2022. Now investors might have to wait until 2022 just for the FID. Fortunately, Africa Oil has long stopped pinning all of its production-related hopes on Kenya, having closed an acquisition of producing assets in Nigeria earlier this year.
Africa Oil also holds a 19.9-per-cent equity interest in fellow Lundin promotion Africa Energy Corp. (AFE), which today edged down one cent to 39 cents on 443,900 shares, despite releasing test results from the Luiperd-1X exploration well off the coast of South Africa. This too is held in a joint venture (in this case with France's Total, Qatar Petroleum and Canadian Natural Resources Ltd. (CNQ: $31.76)). The joint venturers had already announced in late October that the Luiperd-1X well had made a "significant gas condensate discovery" by hitting 73 metres of net pay. Now the well has been tested at a restricted rate of 9,820 barrels of oil equivalent a day. Africa Energy reckoned that the well's unrestricted potential flow rate would be "significantly higher." It added that it is "very pleased" with the result.
Investors had a more measured reaction. Although this is the second discovery that the joint venturers have made on this block since they started drilling in late 2018, the block is located in rough waters about 175 kilometres offshore, bringing plenty of infrastructure challenges should the joint venturers move ahead with development.
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